Defective premises Damages — Third-party claim — Company claiming breach of contract — Company agreeing to sell property to controlling shareholder — Defects appearing in property — Whether company entitled to claim on behalf of shareholder — Whether shareholder having separate statutory negligence claim — Claim allowed in part
The first claimant, a private family company, and the second claimant, its controlling shareholder, brought an action for damages against the defendant surveyor and property consultant for breach of contract in respect of services provided by the defendant in connection with the construction of a moorland shooting lodge. The land was subject to a restrictive covenant to prevent its use for predominantly business purposes and the lodge was to be used only to accommodate hunting parties.
On completion, the first claimant agreed to sell the property to the second claimant under a tax-efficient scheme of family arrangement. The sale was not completed but the second claimant none the less used the lodge for his private and business entertaining.
Defects were subsequently found in the building, and the first claimant brought an action against the defendant for breach of contract. The second claimant also commenced proceedings in his own name against the defendant for negligence under the Defective Premises Act 1972.
The issues for determination were whether: (i) the contract of sale to the second claimant extinguished the first claimant’s interest in the lodge; (ii) the first claimant could recover damages on its own behalf or on behalf of the second claimant; and (iii) as a matter of law, the second claimant could succeed in his statutory claim under the 1972 Act.
Held: The claim was allowed in part.
(1) The first claimant had standing to bring a claim since it held legal title in the property until such times as there was a transfer in accordance with the Land Registration Act 1925.
(2) The purpose of damages was to place a party that had suffered loss and damage by breach of contract in the same position as if the contract had been performed. The rules relating to third-party losses had evolved so that a party would not be prevented from recovering damages on a technicality. If the defendant was in breach of its contract with the first claimant, the second claimant would suffer the substantial loss, either as the first claimant’s controlling shareholder or on his own account. The law would not countenance a situation in which the defendant could avoid paying damages on the basis that the second claimant had made a family arrangement in relation to the property: Owners of cargo laden on board the Albacruz v Owners of the Albazero [1977] AC 774; Linden Gardens Trust Ltd v Lenesta Sludge Disposal [1994] 1 AC 85; [1993] EGCS 139; Alfred McAlpine Construction Ltd v Panatown Ltd (No 1) [2001] 1 AC 518 applied.
(3) The second claimant did not have an alternative claim under the 1972 Act so as to debar him from claiming through the first claimant. Although the lodge was, under the 1972 Act, a “dwelling” fit for human habitation (being a building used or capable of being used as a dwelling and not used predominantly for commercial and industrial purposes), the claim was brought outside the six-year limitation period and was statute-barred.
The second claimant was not debarred from recovering under a third-party claim made by the first claimant. A claim under the contract with the defendant was clearly a claim on a different basis to any claim under the 1972 Act, ever had such a claim been brought in time.
Adrian Williamson QC and Piers Stansfield (instructed by Denton Wilde Sapte) for the claimant; Ben Quiney (instructed by Halliwells LLP) for the defendant.
Eileen O’Grady, barrister
